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Five Things You Need to Know for Wednesday


What you need to know (and what it means).


Five things you need to know to stay ahead of the pack on Wall Street.

1. ECB Meeting

Tomorrow the European Central Bank will meet to discuss further credit tightening.

  • Most expect the ECB to leave rates unchanged at 2.5%, but for ECB President Jean-Claude Trichet to signal an upcoming tightening in May and beyond.
  • In the euro zone, economic data has been mixed.
  • March services PMI came in slightly below forecast at 58.2, but there were pockets of strength among a number of individual countries.
  • Monday, it was reported that Eurozone manufacturing grew at the fastest rate for more than five years, while in the UK there was a clear deceleration.
  • The UK manufacturing purchasing managers' index slipped to the lowest since August.
  • Germany recorded the strongest growth in manufacturing jobs.
  • Data last week suggested recent social unrest over the French government's plans to reform youth employment laws had hit consumer confidence in that country.
  • Do the markets care about any of this? Not yet.
  • The FTSE-100 is at its highest level since February 2001.
  • The French CAC-40, despite pictures on American television suggesting the country is preparing for a real-life reenactment of Bastille Day, is at its highest level since March 2001.
  • German DAX? highest level since July 2001. Milan Mib30 Index? Highest level since 2001. Detecting a trend here.

2. If You're Buying When They're Selling, a Cardboard Box Will Be You're Dwelling.

According to Bloomberg this morning, the lowest-rated credit quality companies, those companies just one or two lost staplers away from default, are selling bonds at a record pace.
  • U.S. companies one step away from default are selling a record amount of bonds.
  • The sales are the most since at least 1999, when Bloomberg began compiling the data.
  • The sales are four times the amount of a year ago.
  • Meanwhile, as "investors" are speculating that the worst-rated junk bonds won't drift into default, these companies can sell their bonds at yields of barely 6 percent more than Treasuries.
  • That is the narrowest spread since 1997, according to Merrill Lynch data.
  • The spread between the lowest-rated junk bonds and other high-yield, high-risk debt is also narrowing.
  • The gap between the two shrank almost a full percentage point in the first quarter to 303 basis points, according to Merrill data.
  • S&P said about 2.9 percent of U.S. companies may miss their debt payments in 2006, below the average of 4.7 percent since 1981.
  • About 60 percent of the riskiest junk bonds, debt rated below B3, typically default within five years, according to Moody's.
  • Meanwhile, the overall default rate is now at its lowest since 1997, Moody's said.

3. Delta, Delta, Delta, Can I Help Ya, Help Ya, Help Ya Go Out of Business?

Delta Air Lines pilots, angered by management's effort to throw out their contract and impose deep pay cuts, voted by a wide margin to authorize a strike, union leaders said Tuesday, according to the Chicago Tribune and other sources.

  • The pilots voted by a margin of 94.7% to authorize a strike.
  • The vote doesn't mean there is definitively going to be a strike, it simply allows union leaders set a strike date.
  • An arbitration panel must decide by April 15 whether to void the pilots' contract.
  • Pilots previously agreed to $1 billion in annual concessions, including a 32.5 percent wage cut, in a five-year deal in 2004, but the airline said it needs more from its pilots since filing for bankruptcy protection back in September.
  • The airline has said a strike by the pilots would put the company out of business.

In this special Five Things You Need to Know... we present Point/Counter-Point for numbers Four and Five.

Point: The Economy is Excellent!

The Wealthiest 1% of American Families

We have learned that the share of net worth held by the wealthiest 1% of American families, good folks like us, rose slightly after inflation between 2001 and 2004, according to figures from the Federal Reserve.

Truly, when we look at the figures, we have to agree, the economy has been really, really good to us! See for yourself:

  • The Fed's Survey of Consumer Finances identified 715 families in the top 1%, corresponding to 1.1 million nationwide and said the minimum net worth for the group was $6 million.
  • In 2004, the wealthiest one percent owned 70% of bonds, 51% of stocks and 62.3% of business assets.
  • After the richest 1%, the Fed found that the next wealthiest 9% of families held 36.1% of net worth in 2004, down from 37.1% in 2001.
  • Below them, families in the top 50% to 90% held 27.9% of net worth in 2004, a slight increase from 2001, while families in the bottom half saw their share fall to 2.5% of net worth in 2004 from 2.8% in 2001.
  • Between 1989 and 2004 families in the top 1% saw their share of net worth rise to 33.4% from 30.1%, while families in the bottom half saw their share fall to 2.5% from 3%.
  • The survey found that 25% of those in the lowest 25% of net worth said they spent more than they earned in 2004, while only 6% of those in the top 1% said they did.

5. Counter-Point: The Economy is Horrible!

Suge Knight

I barely staved off receivership for Death Row Records by seeking bankruptcy protection for myself and the record company Tuesday. Don't tell me the economy is good. I got more than $100 million reasons it's horrible.

  • Knight formed Death Row Records and in the 1990s the label included Snoop Dogg and the late Tupac Shakur, among other rappers.
  • In the bankruptcy filing Knight claimed debts of more than $100 million in each filing, according to the Associated Press.
  • At issue is an unpaid judgment against Knight for $107 million that was awarded to Lydia Harris.
  • Harris claims she helped start the record empire.
  • The bankruptcy filings thwarted an effort to put Death Row Records into receivership, in which a court appointee would have held the business in trust pending resolution of the claim.


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